WEBVTT - Jim Chanos on Who's Getting Caught Swimming Naked 0:00:02.480 --> 0:00:13.920 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.040 --> 0:00:22.080 Hello and welcome to another episode of the Odd Lots Podcast. 0:00:22.160 --> 0:00:23.800 I'm Joe Wisenthal. 0:00:23.440 --> 0:00:24.560 And I'm Tracy Alloway. 0:00:24.760 --> 0:00:27.680 Tracy, I guess one good thing about market crow, I 0:00:27.680 --> 0:00:29.440 don't know if it's even good because I like when 0:00:29.440 --> 0:00:31.680 lines go up no matter what. But you know, people 0:00:31.680 --> 0:00:33.280 always say, oh, this can't go on forever, and they're 0:00:33.280 --> 0:00:36.040 talking about some specific trend or here's a scam or 0:00:36.240 --> 0:00:39.080 here's a bezel in the economy that will exist as 0:00:39.120 --> 0:00:42.200 long as the lines that go up. Things get revealed 0:00:42.240 --> 0:00:46.120 in a downturn, Things that were unsustainable are shown to 0:00:46.200 --> 0:00:49.400 definitively be unsustainable when the downturn hits. 0:00:49.640 --> 0:00:53.440 Right, what's that old buffet quote when you don't see 0:00:53.440 --> 0:00:56.640 who's swimming naked until the tide starts to go out. 0:00:56.680 --> 0:00:59.920 And I think, I think we are probably at that moment. 0:01:00.280 --> 0:01:02.440 And I got to say, in terms of who likes 0:01:02.800 --> 0:01:05.399 when lines go down, you know who likes when lines 0:01:05.440 --> 0:01:07.160 go down? Yeah, short sellars. 0:01:07.240 --> 0:01:10.360 That's right, they definitely do. Especially what it's been like 0:01:10.440 --> 0:01:12.800 fifteen years since the line has gone down, and so 0:01:12.840 --> 0:01:15.560 many short sellers have had such a brutal time. Maybe 0:01:15.560 --> 0:01:18.039 we'll put swimming naked in the headline of this. 0:01:18.760 --> 0:01:21.040 Instead of a dead body is floating to the top. 0:01:21.120 --> 0:01:23.480 Maybe it's a little we'll have to figure out. Anyway, 0:01:23.600 --> 0:01:25.400 let's just jump right to it. We've had him on 0:01:25.480 --> 0:01:28.600 the show in the past, someone we always enjoy talking to. 0:01:28.880 --> 0:01:31.240 He is going to tell us about what bodies are 0:01:31.240 --> 0:01:34.280 going to float to the service, and those bodies happen 0:01:34.360 --> 0:01:36.679 to be naked too. He's gonna tell us what naked 0:01:36.680 --> 0:01:39.640 bodies are floating to the service. Jim Chaeno is founder 0:01:39.640 --> 0:01:44.000 of chenos In Company, longtime investor, short seller. Thank you 0:01:44.040 --> 0:01:45.240 for coming back on odd Lots. 0:01:45.440 --> 0:01:47.360 No, thanks for having me. It's my pleasure. 0:01:47.520 --> 0:01:51.840 I only recently learned that Scott Bessen. I say recently learned, 0:01:51.880 --> 0:01:53.200 as if I looked this up. I heard it from 0:01:53.200 --> 0:01:55.160 you as you were walking into the studio. He worked 0:01:55.160 --> 0:01:55.360 for you. 0:01:55.600 --> 0:01:56.880 Yeah, he was my first analyst. 0:01:56.920 --> 0:01:57.440 Incredible. 0:01:57.520 --> 0:01:59.320 I taught him everything he knew up to a point, 0:01:59.360 --> 0:02:00.680 I guess to a point. 0:02:01.120 --> 0:02:04.560 Okay, all right, I'm just going to ask basic questions 0:02:04.600 --> 0:02:08.080 to start. But what has the past week or so. 0:02:08.360 --> 0:02:11.880 Let's see, we're recording this on April ninth at eight am. Yeah, 0:02:11.919 --> 0:02:14.200 we have to be that specific on the time now 0:02:14.200 --> 0:02:17.520 because things change so quickly. What has the past week 0:02:17.639 --> 0:02:18.400 been like for you? 0:02:19.000 --> 0:02:22.920 Well, we're not in the business of running outside money anymore, 0:02:22.960 --> 0:02:24.520 so that ended a couple of years ago, but we 0:02:24.560 --> 0:02:27.120 do advise clients and of course run our own money. 0:02:27.600 --> 0:02:32.440 So since nineteen ninety six we've always been hedged. But 0:02:34.000 --> 0:02:38.240 we've seen obviously substantial alpha in the last couple of weeks. Ie, 0:02:39.120 --> 0:02:41.320 the stuff we're short has gone down much more than 0:02:41.360 --> 0:02:43.520 the market. We tend to be long in the market passively, 0:02:44.080 --> 0:02:48.080 and that usually happens right when the market shifts gears. 0:02:48.680 --> 0:02:54.399 A lot of the more questionable story stocks, frauds, hypes 0:02:54.840 --> 0:02:58.320 begin to underperform. And that was not the case until 0:02:58.720 --> 0:03:02.959 really about the tariff, the Liberation day, and now it's 0:03:02.960 --> 0:03:03.679 really kicked in. 0:03:04.120 --> 0:03:08.600 If I'm a equity, if I'm an asset allocator, is 0:03:08.639 --> 0:03:12.160 that why I allocate to someone who specializes in short selling, 0:03:12.360 --> 0:03:15.000 Not because they are going to give me positive returns 0:03:15.000 --> 0:03:18.000 a month after month after month, but that it allows 0:03:18.080 --> 0:03:21.160 me to be more comfortably long risk assets in my 0:03:21.320 --> 0:03:24.200 other investments because I have this knowledge that I'll get 0:03:24.200 --> 0:03:27.880 outside return outside returns from you when they go down. 0:03:28.000 --> 0:03:34.079 Yeah, in our business model over forty forty years. Basically 0:03:34.720 --> 0:03:38.800 it morphed into the idea that fundamental shorts allow you 0:03:38.800 --> 0:03:42.040 to be more long. Yeah, and that's really at the 0:03:42.080 --> 0:03:44.720 end of the day, your shorts are financing your long portfolio. 0:03:44.960 --> 0:03:49.800 If your shorts don't go up or go down, enables 0:03:49.840 --> 0:03:56.480 you to have a long portfolio that actually will outperform. Yeah. 0:03:56.560 --> 0:04:00.880 I mean, it is true that before this month, being 0:04:00.880 --> 0:04:04.080 a short seller did not seem that fun for like 0:04:04.200 --> 0:04:06.920 the past ten years, and we've done episodes on the 0:04:08.200 --> 0:04:11.720 hard life of being a short seller. Are the games 0:04:11.800 --> 0:04:17.360 now enough to offset like a decade of lines going up? 0:04:17.520 --> 0:04:20.359 Well, again, the lines are going up. But it was 0:04:20.400 --> 0:04:23.479 all a matter of if you're selling insurance as I 0:04:23.560 --> 0:04:27.839 was and advised people do do now, the idea is 0:04:27.839 --> 0:04:32.000 the insurance working, and the insurance was working really for 0:04:32.240 --> 0:04:36.080 even post global financial crisis for quite a while, and 0:04:36.120 --> 0:04:41.120 then starting about twenty eighteen, twenty nineteen, and right into 0:04:41.200 --> 0:04:43.920 the Game Stop episode in the first quarter of twenty 0:04:43.960 --> 0:04:48.920 twenty one, it didn't work at all. But it has 0:04:49.040 --> 0:04:51.640 worked since Game Stop and even though the market's made 0:04:51.640 --> 0:04:54.880 new highs, you know, recently, I think is January, the 0:04:54.920 --> 0:04:58.000 short site has not been too bad. I mean, Bloomberg 0:04:58.040 --> 0:05:02.440 has an index the most shorted basket, which you can 0:05:02.600 --> 0:05:04.880 take a look at if you're a Bloomberg subscriber. Thank 0:05:04.880 --> 0:05:09.080 you for the plug, my pleasure, and it has it 0:05:09.120 --> 0:05:13.520 has done relatively well relative to the market since since 0:05:13.560 --> 0:05:14.560 early twenty twenty one. 0:05:15.480 --> 0:05:17.840 Let's talk about some areas of the market. Let's just 0:05:18.320 --> 0:05:22.839 jump right into it. I think actually the last time 0:05:22.839 --> 0:05:26.080 we had you on I'm looking at this was FTX 0:05:26.120 --> 0:05:29.080 November or was it it wastually That's. 0:05:29.000 --> 0:05:34.560 Right, it was actually before FTX imploded officially, but after 0:05:34.720 --> 0:05:37.080 we did the infamous box episode. 0:05:37.120 --> 0:05:39.640 But you know what, the last time we talked to 0:05:39.760 --> 0:05:44.159 was November twenty third, twenty twenty two, right as FTX 0:05:44.240 --> 0:05:47.960 was uploading. But there's just another point in the history 0:05:47.960 --> 0:05:51.279 here that's important. November thirty of twenty twenty two was 0:05:51.320 --> 0:05:53.960 when chaed GPT came out, and then we got this 0:05:54.080 --> 0:05:58.240 incredible AI wave and people started piling everything into Nvidia 0:05:58.560 --> 0:06:01.159 and all these data center plays, et cetera. And in 0:06:01.440 --> 0:06:03.919 previous odd lads, and I don't remember what that was. 0:06:03.960 --> 0:06:07.440 You've talked about data centers before. In some brutal data 0:06:07.480 --> 0:06:10.440 center economics are terrible. One of the things that we've 0:06:10.480 --> 0:06:13.520 seen in this downturn. See I'm putting this all together. 0:06:13.560 --> 0:06:16.159 This is not totally incoherent. One of the things that 0:06:16.200 --> 0:06:20.200 we've seen in this downturn is some really like sharp 0:06:20.240 --> 0:06:23.440 reversals for the big AI plays that were baked. Those 0:06:23.480 --> 0:06:26.279 were just so hot. And so I'm curious now, like 0:06:26.360 --> 0:06:29.240 you know, you've talked about data centers, et cetera, tell 0:06:29.279 --> 0:06:31.200 us where you're seeing some of this stuff right now. 0:06:31.279 --> 0:06:35.560 So the AI bet is an uncertain bet. We don't 0:06:35.640 --> 0:06:39.479 know what the returns on this massive investment is going 0:06:39.520 --> 0:06:42.880 to be yet, and even the mag seven will tell you, yeah, 0:06:42.920 --> 0:06:45.760 well it's uncertain. We think it's going to be worth 0:06:46.080 --> 0:06:50.320 the risk, but it's an uncertain payot and I'll leave 0:06:50.360 --> 0:06:52.920 that up to people who are much more well versed 0:06:52.960 --> 0:06:56.000 in technology than I am. Our view was that the 0:06:56.320 --> 0:07:00.000 old legacy data centers that were built to basically handle 0:07:00.160 --> 0:07:05.039 the cloud, not AI. We're in trouble and we're a 0:07:05.040 --> 0:07:07.400 bad business to begin with. It have gotten only worse. 0:07:08.000 --> 0:07:10.960 And that was that was the bet. It's still the bet. 0:07:11.520 --> 0:07:13.320 I think it's a really I've called it one of 0:07:13.320 --> 0:07:16.119 the worst business models I've ever seen. Because the cap 0:07:16.320 --> 0:07:18.640 x is enormous. You've got to keep replacing the air 0:07:18.680 --> 0:07:23.040 conditionings and the racks and the networking equipment and to 0:07:23.120 --> 0:07:26.520 keep these centers running, and the returns on capital are 0:07:26.720 --> 0:07:30.800 just abysmally low. So we kind of said, oh, right, 0:07:31.200 --> 0:07:34.880 AI is a thing. It's an uncertain thing. Market loved it. 0:07:35.040 --> 0:07:37.880 Now market's questioning it. But we do know that the 0:07:37.960 --> 0:07:40.160 old data centers, the ones that have been around now 0:07:40.840 --> 0:07:45.600 twenty years, yeah, Equinas to Digital Realty, Digital Bridge, those 0:07:46.280 --> 0:07:48.480 have really challenged business models. 0:07:48.720 --> 0:07:51.520 So one of the things that happened recently is Core 0:07:51.640 --> 0:07:56.600 We've did its IPO and it had initially targeted two 0:07:56.600 --> 0:07:59.800 point seven billion and it came in at one point 0:07:59.840 --> 0:08:03.120 five five billion. And the interesting thing to me is 0:08:04.120 --> 0:08:07.000 part of that was a really big order from in Vidia, 0:08:07.400 --> 0:08:13.120 and in Vidia is very interwoven with Core weaves model. 0:08:13.360 --> 0:08:16.960 Since we're already talking about floating bodies and people swimming naked, 0:08:17.000 --> 0:08:19.440 I'm going to try to be as distasteful as I can, 0:08:19.520 --> 0:08:24.280 but how incestuous is the relationship between Core Weave and Nvidia. 0:08:24.520 --> 0:08:27.240 So for those of us that are a little bit 0:08:27.280 --> 0:08:30.560 older than you two, I mean, we remember some of 0:08:30.560 --> 0:08:32.880 the round tripping that was going on in telecom equipment 0:08:32.920 --> 0:08:36.040 back in nineteen ninety two thousand, with Nortel and Lucent 0:08:37.240 --> 0:08:42.320 providing financing for its customers and then selling things into 0:08:42.360 --> 0:08:46.520 those customers on cheap terms, and the whole thing unwound 0:08:46.640 --> 0:08:50.240 very quickly when the dot com bubble and telecom bubble imploded. 0:08:51.080 --> 0:08:54.640 I put a tweet out that got some notice where 0:08:54.760 --> 0:08:57.360 I saw it in Nvidia not only was doing the 0:08:57.360 --> 0:08:59.120 core weave kind of just but had just bought a 0:08:59.160 --> 0:09:03.920 distributor there, and that that was also a little worrisome. Now, 0:09:04.080 --> 0:09:06.600 it's only a small part of their business, it's not material. 0:09:07.040 --> 0:09:10.880 But when you start to see this stuff on the margin, 0:09:11.440 --> 0:09:16.800 where the companies are increasingly round tripping with their customers, 0:09:16.880 --> 0:09:20.360 or financing their customers, or buying in their inventory via distributors, 0:09:20.880 --> 0:09:25.400 you begin to wonder. You know, if it's just on 0:09:25.440 --> 0:09:28.560 the margin, that's fine. But as we all know, on 0:09:28.640 --> 0:09:31.000 the margin is everything right. If you miss your earnings 0:09:31.000 --> 0:09:34.319 by a couple of pennies, your stock can be devastated. 0:09:34.679 --> 0:09:37.720 And if they're doing deals like this to basically, you know, 0:09:37.840 --> 0:09:40.199 make sure they make or beat numbers, you know, then 0:09:40.240 --> 0:09:42.600 we have the old We have the old nineteen ninety eight, 0:09:42.679 --> 0:09:45.960 ninety nine, two thousand, dynamic at work where companies are 0:09:46.000 --> 0:09:49.360 stretching to make numbers. That has not been the case 0:09:49.520 --> 0:09:52.680 up until now. Right through twenty twenty three, twenty twenty four, 0:09:52.880 --> 0:09:58.200 demand's been amazing. Yeah, blowout numbers, but it's something to 0:09:58.240 --> 0:09:59.600 keep an eye on at the shift. 0:10:00.000 --> 0:10:04.040 So in other words, like the insinuation here is not 0:10:04.120 --> 0:10:07.400 that there's something like per se bad, but history says 0:10:07.640 --> 0:10:10.040 that when you see stuff like this, to keep the. 0:10:10.040 --> 0:10:15.120 Real aggressively aggressive aggressive moves with your customers and your distributed. 0:10:14.720 --> 0:10:17.680 Because that's what everyone's been wondering, right, And I guess 0:10:17.720 --> 0:10:19.600 like all of this stuff with the trade turmoil has 0:10:19.640 --> 0:10:22.599 like like we actually it's kind of amazing because I 0:10:22.640 --> 0:10:24.960 think we've gone two weeks without talking about AI, which 0:10:25.040 --> 0:10:27.599 may something maybe it's something that we could be a 0:10:27.640 --> 0:10:31.120 little bit thankful for in some sense. But we're the 0:10:31.160 --> 0:10:34.520 trade trade war to go away tomorrow. Yeah, and we 0:10:34.559 --> 0:10:36.760 were returned to what we were talking about in January. 0:10:36.760 --> 0:10:39.040 I saw your post earlier today about if tariffs run 0:10:39.040 --> 0:10:41.920 away like this and all the other stuff that is 0:10:41.920 --> 0:10:43.079 suddenly should. 0:10:42.800 --> 0:10:43.440 Be a concern. 0:10:43.800 --> 0:10:46.839 Yeah. I look on the margin again, on the margin 0:10:46.960 --> 0:10:50.400 I think these numbers are not material that they're deal 0:10:50.480 --> 0:10:53.360 with Core Week the distributor their bought, but it's something 0:10:53.360 --> 0:10:54.080 to keep an eye. 0:10:53.920 --> 0:10:56.200 On, Tracy, I just want to do, by the way, 0:10:56.200 --> 0:10:59.480 some of these names are just for listeners digital realties below. 0:11:00.000 --> 0:11:02.360 Where it was like at its twenty twenty peak, after 0:11:02.440 --> 0:11:05.560 having plunged from about one ninety five to one thirty three, 0:11:06.720 --> 0:11:09.480 named Cornweave was actually just slightly above its IPO price 0:11:09.480 --> 0:11:11.480 of forty That was a czy day. It's anging in 0:11:11.520 --> 0:11:13.840 the the said forty one thirty five right now. So anyway, 0:11:14.559 --> 0:11:15.080 So one. 0:11:14.920 --> 0:11:17.559 Of the things that happened in the early two thousands 0:11:17.559 --> 0:11:21.720 with the telecoms and Internet bubble is I think people 0:11:22.000 --> 0:11:25.640 a lot of people expected some of these companies to fail, 0:11:26.200 --> 0:11:29.200 but I guess the bet was maybe a handful of 0:11:29.240 --> 0:11:32.920 them would be huge winners from the development of the Internet. 0:11:32.960 --> 0:11:35.959 And it's true. You know, we have like Google come 0:11:36.040 --> 0:11:39.080 out of this. If you invested in Amazon, you made 0:11:39.080 --> 0:11:42.120 a lot of money. Is there any possibility of that 0:11:42.200 --> 0:11:45.840 happening when it comes to AI. Do you see a winner? 0:11:46.080 --> 0:11:47.480 Oh? I mean, I think there's going to be a 0:11:47.520 --> 0:11:50.720 lot of winners if it's as revolutionary as a technology 0:11:50.720 --> 0:11:54.600 as it appears to be, we'll see all kinds of 0:11:55.160 --> 0:11:58.640 new business models and probably a company that we might know, 0:11:59.080 --> 0:12:01.400 like in video where ever succeeding, or maybe a couple 0:12:01.440 --> 0:12:04.440 of companies we don't know yet that we'll take advantage 0:12:04.480 --> 0:12:07.360 of it. The flip side to be the glass half 0:12:07.400 --> 0:12:11.520 empty guy, is that what everyone also forgets about the 0:12:11.600 --> 0:12:15.360 Internet was that it destroyed as many businesses as it 0:12:15.800 --> 0:12:18.520 brought forward, you know, and any business that was in 0:12:18.559 --> 0:12:22.840 the analog business that went digital, so you actually had 0:12:22.840 --> 0:12:26.360 a physical product that went digital was absolutely devastated, like 0:12:26.520 --> 0:12:31.360 Kodak or Blockbuster Video or the Yellow Pages, what have you. 0:12:31.960 --> 0:12:34.920 And I suspect that AI will be very similar. We'll 0:12:34.920 --> 0:12:40.280 see just you know you're a hater. No, No, I'm 0:12:40.520 --> 0:12:43.480 open minded about it. I think if it really is 0:12:43.480 --> 0:12:46.760 an amazing technology, and I think it just you're going 0:12:46.840 --> 0:12:48.480 to have to see both sides of the coin for 0:12:48.520 --> 0:12:51.880 capitalism with it. It'll probably it'll probably devastate a number 0:12:51.880 --> 0:12:53.040 of business models as well. 0:12:53.400 --> 0:12:56.960 What's the path to bundetization for these AI companies, because 0:12:57.000 --> 0:12:59.640 you already pointed out the cost of capital is really high. 0:13:00.120 --> 0:13:03.600 Uh, I don't know, and that's we still haven't seen 0:13:03.720 --> 0:13:07.400 the the aha moment as we did with the Internet, 0:13:07.559 --> 0:13:12.800 with with online retailing and communities like America Online where 0:13:12.840 --> 0:13:15.280 suddenly you know your aunt was on it, and then 0:13:15.320 --> 0:13:18.040 getting email money and paying money, paying money for it 0:13:18.040 --> 0:13:19.559 and getting emails. 0:13:19.160 --> 0:13:20.920 And you have mail. 0:13:37.520 --> 0:13:41.600 Let's pivot because you have been fond over the years 0:13:42.160 --> 0:13:45.240 to talk about this sort of myth that private equity 0:13:45.520 --> 0:13:48.360 is something more than just adding leverage to companies and 0:13:48.400 --> 0:13:51.160 that there's this perceived stability. Yeah, it's very nice. You 0:13:51.160 --> 0:13:53.000 don't have to look at your marks every day that 0:13:53.040 --> 0:13:56.360 it really is just leverage. And you know, I'm looking 0:13:56.400 --> 0:13:59.160 at a share price. The shares of like Apollo, for example, 0:13:59.160 --> 0:14:01.520 I guess maybe the Good Credit that was at one 0:14:01.679 --> 0:14:05.720 eighty nine thirty on December ninth, that's at one oh nine. 0:14:06.320 --> 0:14:10.000 Blackstone shares look pretty similar. We're talking like forty percent 0:14:10.040 --> 0:14:12.960 declined air that was at two hundred. It's at one 0:14:13.040 --> 0:14:15.959 eighteen right now. That's belower it was in late twenty 0:14:16.040 --> 0:14:19.440 twenty one. Private assets are like the story that Tracy 0:14:19.440 --> 0:14:22.120 and I keep coming back to. What is your takeaway 0:14:22.160 --> 0:14:24.480 from this, like really intense selling of these names. 0:14:24.560 --> 0:14:27.640 Yeah, I mean, I'm a little surprised at how intense 0:14:27.640 --> 0:14:30.560 the selling has been so quickly. But look, I mean, 0:14:30.600 --> 0:14:34.720 I agree with with the cliff Asnas who's done a 0:14:34.720 --> 0:14:38.160 great job talking about this. This is volatility laundering, and 0:14:38.480 --> 0:14:42.280 the idea that these funds don't have the same risks 0:14:42.280 --> 0:14:46.600 as equity funds have is to me preposterous. You're buying 0:14:46.640 --> 0:14:50.360 businesses on leverage, and we're now seeing that as it's 0:14:50.400 --> 0:14:54.800 becoming increasingly hard for these deals, for them to bring 0:14:54.840 --> 0:14:57.880 these deals public or get exits. And again on the margin, 0:14:57.920 --> 0:15:00.280 you're seeing a little bit of odd behavior some of 0:15:00.280 --> 0:15:03.800 the private equity funds in trying to entice their investors 0:15:03.840 --> 0:15:07.040 to stick around. We'll have to see. I mean, up 0:15:07.160 --> 0:15:10.080 until now, for the last fifteen years, getting back to 0:15:10.520 --> 0:15:14.440 the beginning of our conversation, sell offs have been relatively 0:15:14.480 --> 0:15:17.680 short and sharp. So if you held off on marking 0:15:17.720 --> 0:15:22.120 your portfolio down, you generally were rewarded by not having 0:15:22.120 --> 0:15:25.720 to take the mark right. The markets kept going, and 0:15:26.120 --> 0:15:30.040 the nightmare scenario for private equity and arguably private credit 0:15:30.160 --> 0:15:35.720 will be a long period of lackluster or no equity 0:15:35.760 --> 0:15:39.080 returns with higher interest rates. 0:15:39.120 --> 0:15:41.800 Can you actually just when you said, oh, at the margins, 0:15:41.800 --> 0:15:45.280 we're starting to see some jinky behavior with regards to 0:15:45.400 --> 0:15:47.760 their partner LPs. You what's going on. 0:15:48.240 --> 0:15:51.200 There was a story I think on Bloomberg just yesterday 0:15:51.280 --> 0:15:54.000 or the day before where one of the funds was 0:15:54.360 --> 0:15:59.040 asking investors if they wanted to sell their LP investment 0:15:59.080 --> 0:16:02.240 in one of the funds or transfer it, they had 0:16:02.320 --> 0:16:04.800 to get permission from the GP. In order to get permission, 0:16:04.840 --> 0:16:07.880 they had agree to put money into the next one. 0:16:08.320 --> 0:16:11.720 And that story caught my eye, And so you know 0:16:11.800 --> 0:16:14.920 when you start to see that, And now we're starting 0:16:14.920 --> 0:16:18.680 to see time series of fun performance that are starting 0:16:18.720 --> 0:16:23.600 to become more lackluster right rolling ten year returns and 0:16:23.640 --> 0:16:26.720 private equity are beginning to converge with that of the 0:16:26.720 --> 0:16:27.760 regular equity market. 0:16:28.040 --> 0:16:30.680 To your point about the length of the selloff, I mean, 0:16:30.800 --> 0:16:34.560 we've established that one of the competitive advantages of doing 0:16:34.600 --> 0:16:38.000 private credit versus public is you're not forced to take 0:16:38.000 --> 0:16:40.480 the marked market losses so soon you can hold on 0:16:40.720 --> 0:16:44.720 for longer. Theoretically, we're seeing a lot of people right 0:16:44.760 --> 0:16:48.560 now talk about, you know, emergency moves from the Fed, 0:16:48.920 --> 0:16:52.560 maybe a cut sooner than the market had expected a 0:16:52.600 --> 0:16:57.840 week or two ago. Do interest rates matter for private 0:16:57.880 --> 0:17:00.280 credit at the moment? How much of a buffer for 0:17:00.440 --> 0:17:02.200 what lower rates actually provide. 0:17:02.200 --> 0:17:04.680 Here. Well, I think spreads matter, okay, so and we've 0:17:04.720 --> 0:17:08.000 seen we've seen them widening out of credit spreads. So 0:17:08.080 --> 0:17:10.040 I think that one of the reasons people think the 0:17:10.080 --> 0:17:12.720 FED is going to ease is because of that right weakness, 0:17:13.359 --> 0:17:16.720 not not because of low inflation. And so you're seeing 0:17:16.880 --> 0:17:22.119 a relatively very quick increase in credit spreads over the 0:17:22.119 --> 0:17:25.679 past two weeks. I mean, it's really moved. So I 0:17:25.720 --> 0:17:30.000 don't think that that that's the panacea that people are expecting, 0:17:30.000 --> 0:17:33.359 at least not yet. Even with a FED ease, because 0:17:33.440 --> 0:17:36.639 junk credit is rates are going up. 0:17:37.000 --> 0:17:40.440 Right, they could the FED could do something just about 0:17:40.480 --> 0:17:44.040 like the sheer mechanical breakdown. If it's happening the plumbing, 0:17:44.200 --> 0:17:46.320 the plumbing people love to talk about the plumbing of 0:17:46.320 --> 0:17:47.119 the treasury market. 0:17:47.240 --> 0:17:49.520 The base is straight. I read something. I read something 0:17:49.560 --> 0:17:50.919 today about the basis. 0:17:51.320 --> 0:17:52.800 Thank you, thank you for reading. 0:17:53.320 --> 0:17:56.639 Listen, pause right there, listeners. Jim Chandos is a reader 0:17:56.640 --> 0:17:59.600 of the Odd Launch newsletter, which means you should be 0:18:00.080 --> 0:18:04.960 to what is it What does a GP of a 0:18:05.119 --> 0:18:10.560 private fund do when the IPO window is slammed shut 0:18:10.840 --> 0:18:13.159 when there really is not a lot of M and A. 0:18:13.440 --> 0:18:17.879 So basically very few opportunities for liquidity or distribution or 0:18:17.920 --> 0:18:20.720 anything like that. What kind of move do they make? 0:18:21.160 --> 0:18:25.280 You? Better? Better practice your writing of a heartfelt apology 0:18:25.359 --> 0:18:28.639 letters to your LPs, because the IRRs you've been telling 0:18:28.680 --> 0:18:31.480 them that the fund has been getting prior to its 0:18:31.600 --> 0:18:33.600 wind up are going to turn out to be way 0:18:33.600 --> 0:18:37.800 overstated to the actual returns. So look, it's it's problematic. 0:18:37.880 --> 0:18:39.960 I mean, investors are going to get back stakes in 0:18:40.000 --> 0:18:44.160 private companies that they might not want. Oh so distributions 0:18:44.160 --> 0:18:47.879 in kind, yeah, exactly, and so if you can't cash 0:18:47.880 --> 0:18:51.600 out and so yeah, I think it's going to be 0:18:51.640 --> 0:18:54.240 problematic for a number of funds. I mean, I'm sure 0:18:54.359 --> 0:18:57.480 there'll be plenty that'll do fine. But the days of saying, well, 0:18:57.520 --> 0:19:01.800 I'm going to earn fourteen fifteen percent with very little volatility, 0:19:02.280 --> 0:19:04.200 so this is a free lunch, I think are over. 0:19:04.600 --> 0:19:07.359 The other narrative that pops up from time to time 0:19:07.480 --> 0:19:10.480 is this idea of dry powder. There are a bunch 0:19:10.480 --> 0:19:13.439 of funds out there who have been holding cash for 0:19:13.480 --> 0:19:17.320 a long time, just waiting to snap up distressed assets 0:19:17.359 --> 0:19:20.320 once everything finally crashes. Is that real? 0:19:20.680 --> 0:19:23.040 I don't know. I mean, you have to get into 0:19:23.080 --> 0:19:27.959 the sort of weeds of every specific fund, but I mean, 0:19:27.960 --> 0:19:30.040 if they've been holding cash for years and years and years, 0:19:30.040 --> 0:19:32.760 they certainly weren't earning that fourteen and fifteen percent investors 0:19:32.760 --> 0:19:36.800 were hoping for. So I don't know, I don't know 0:19:36.800 --> 0:19:40.200 how the accounting works on that, but I'm sure. Look, 0:19:40.480 --> 0:19:44.200 there is some unused capacity in the private equity world. 0:19:45.080 --> 0:19:48.360 But on the other hand, that doesn't get you your returns. 0:19:48.440 --> 0:19:51.520 You know, buying companies and adding value to them is 0:19:51.520 --> 0:19:55.840 where the returns are. So if there were funds and 0:19:55.880 --> 0:19:59.200 firms holding dry powder and asset prices get marked down 0:19:59.200 --> 0:20:00.880 a lot, that should be good thing for them. 0:20:01.160 --> 0:20:03.359 It just seems I mean, the issue to me, and 0:20:03.400 --> 0:20:05.760 I've sort of talked about this in various ways, is 0:20:05.800 --> 0:20:08.959 that for the last fifteen years, you're a dummy if 0:20:08.960 --> 0:20:11.560 you had dry powder, right the market has told you 0:20:11.640 --> 0:20:15.000 over and over again, right like, So this is why 0:20:15.040 --> 0:20:17.960 I'm always kind of skeptical that there could even possibly 0:20:18.000 --> 0:20:20.720 be much And it's interesting, you know, look like we're 0:20:20.760 --> 0:20:22.960 like two weeks into or no, it's been a week 0:20:23.359 --> 0:20:26.879 since Liberation Day, but you go a few weeks before 0:20:26.920 --> 0:20:29.840 that obviously the weakness started picking up, and now we're 0:20:29.840 --> 0:20:32.480 seeing you know, we've seen this sort of dislocation and treasuries. 0:20:32.560 --> 0:20:35.000 It seems like if you have fifteen years of people 0:20:35.160 --> 0:20:39.600 telling you you're a moron for holding, for being under levered, Yeah, 0:20:39.680 --> 0:20:42.520 then a downturn in just sort of normal investments can 0:20:42.560 --> 0:20:44.879 metastasize into financial problems very quickly. 0:20:44.920 --> 0:20:48.639 Well, it also depends, tracy, how you define dry powder. 0:20:48.680 --> 0:20:51.159 A lot of firms defined dry powder as the ability 0:20:51.200 --> 0:20:54.160 to capital call on their limiteds. It's not actually cash 0:20:54.200 --> 0:20:56.000 sitting in a bank acount. Yeah. Yeah, and I think 0:20:56.040 --> 0:20:58.600 that will become much more problematic in a downturn. 0:20:58.640 --> 0:20:59.600 I've got to pick up the phone. 0:20:59.720 --> 0:21:02.440 Yeah yeah, look, yeah, so. 0:21:02.520 --> 0:21:05.760 You're primarily a markets guy, but you are no stranger 0:21:06.040 --> 0:21:08.960 to Macro. Talk to us a little bit about I 0:21:09.000 --> 0:21:11.760 guess the relationship between what we're seeing in markets and 0:21:11.800 --> 0:21:13.600 the real economy right now. 0:21:14.320 --> 0:21:18.080 Yeah, I mean, the transmission mechanism via tariffs will happen 0:21:18.160 --> 0:21:21.520 pretty quickly, I think. I mean, you saw Walmart warn today, 0:21:21.760 --> 0:21:26.720 Delta has pulled their guidance. Both of those were just today. 0:21:27.200 --> 0:21:31.080 I mean, it's kind of stunning. How if you think 0:21:31.080 --> 0:21:34.200 about the nuts and bolts of these tariffs and how 0:21:34.200 --> 0:21:37.760 they work. Despite what our president says, the importing entity 0:21:37.800 --> 0:21:41.160 pays the tariff, right, it's not a tax on China. 0:21:41.440 --> 0:21:44.040 And so you're a small and medium businessman. You just 0:21:44.040 --> 0:21:46.320 got one hundred thousand dollars worth a product that landed 0:21:46.320 --> 0:21:51.280 at Long Beach Port from China, and your broker is saying, yeah, 0:21:51.320 --> 0:21:53.440 just come down with a cashiers check for one hundred 0:21:53.480 --> 0:21:56.840 thousand dollars for the governments and will release your product. 0:21:56.920 --> 0:21:59.720 Businesses don't have that, yeah, And so I mean there's 0:22:00.400 --> 0:22:04.680 practical aspects these tariffs that I don't think we kind 0:22:04.680 --> 0:22:08.639 of know all the implifications and how it will ripple 0:22:08.680 --> 0:22:12.400 through the economy. And I suspect you'll start by May 0:22:12.560 --> 0:22:18.000 getting some pretty decent real time feedback on from businesses saying, 0:22:18.119 --> 0:22:21.359 you know, we're cutting out profit guidance because if they 0:22:21.359 --> 0:22:24.720 can't pass it on completely, and study after study shows 0:22:24.720 --> 0:22:28.200